Solar is Destined to Defeat Fossil Fuels

While many are preoccupied with declining oil prices, solar power continues its steady trajectory towards grid parity. The long-term cost of utility-scale has fallen 20 percent in the past year and 78 percent in the last five years. While it was hard for solar to compete with subsidized natural gas the outlook for solar is very bright.

Unlike fossil fuels which are a commodity that cannot improve, solar is a technology that keeps on getting more efficient. Solar keeps getting cheaper while the price of extracting fossil fuels continues to increase.

As documented in the report, Photovoltaic (PV) Pricing Trends: Historical, Recent, and Near-Term Projections (2014 Edition) the price of solar keeps falling. In 2013 the price of distributed solar photovoltaic (PV) system prices dropped by 12 – 19 percent in the US and in 2014 prices were expected to fall an additional 3 – 12 percent. The trend of declining solar costs are expected to continue over the next couple of years. Modeled utility-scale PV system prices fell below $2 a watt in 2013, and have continued to decline in 2014, to roughly $1.80 a watt, which is 59 percent below what modeled pricing showed in 2010. By 2020 PV is expected to reach widespread grid parity in the U.S. without federal or state subsidies. These numbers are consistent with the SunShot initiative in which the DOE supports efforts by private companies, universities, and national laboratories to drive down the cost of solar electricity to $0.06 per kilowatt-hour.

An October 2014 Deutsche Bank report by Vishal Shah indicates that prices will keep dropping as the technology improves and financing becomes more affordable. If the current tax credit is maintained, by 2016 solar will be as cheap or cheaper than the current electricity bills in 47 US states. Even if that credit falls by one third from the current rate of 30 percent to 10 percent, solar will still be price competitive or better in 36 states.

Solar has already achieved grid parity in 10 states that are responsible for 90 percent of US solar electricity production. In those states alone, installed capacity growth will increase six times over the current levels in the next three or four years.

Michael Park, an analyst at Sanford Bernstein, refers to solar’s price superiority paradigm as the Terrordome.

The declining cost of solar will not only benefit the US it will be revolutionary in poorer countries which simply cannot afford to invest the billions of dollars commonly required for a centralized fossil fuel power plant.

Solar is en route to being the world’s preeminent source of electricity. According to International Energy Agency (IEA) predictions, solar will go from being a bit player in the electricity production to being the undisputed energy juggernaut by 2050. The IEA report explicitly states that “the sun could be the world’s largest source of electricity by 2050.”

The key point in this analysis is that solar is a technology, and like other technologies it is destined to keep improving. This means greater efficiency, more productivity and lower costs. Fossil fuels simply cannot compete as they are commodities which are finite. All the easily accessible oil has already been extracted what remains is harder to reach and more expensive to extract. This makes them very volatile.

As stated by said Lyndon Rive, CEO of SolarCity Corp.,”Fluctuations in oil prices have little impact on solar or many other renewable energy sources. This is partly why the economic proposition of solar is so compelling, unique and valuable…For example, up to 50% of the cost of a fossil plant is the expense of the fuel over the life of the plant, while sunlight is essentially free.”

With the price declines in solar photovoltaic (PV) technology showing no signs of slowing anytime soon, fossil fuel prices are losing their sway over the solar industry.